Capita Financial Managers to pay up to £66 million for the benefit of investors in the Connaught Income Fund, Series 1

Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA said:

“Consumers are entitled to expect that authorised firms will carry out their responsibilities under our Principles for Businesses with care and diligence.  These responsibilities are paramount and in this instance CFM failed badly.

“The aim of the payment announced today is to return the amount originally invested, placing investors as closely as possible back into the position they would have been in if they had never invested in the Fund.

“The amount to be returned to investors to achieve this takes into account the fact that investors have already received a distribution of £22 million made in the liquidation, as well as interest and other payments. This also includes any awards made under the Financial Ombudsman Scheme they may have received since they invested.

“We acknowledge this resolution would not have been possible without the co-operation of Capita plc and CFM. This agreement will provide substantial benefit to all outstanding investors, including those who invested in the Fund after CFM resigned as Operator.”

The Fund was an unregulated collective investment scheme (UCIS) which commenced operation in March 2008 providing short term bridging finance to commercial operators in the UK property market. CFM was the operator of the Fund until it resigned on 25 September 2009. The Fund ultimately went into liquidation on 3 December 2012.

The FCA found that CFM breached Principle 2 of the FCA’s Principles for Businesses (“the Principles”) because it failed to conduct adequate due diligence on the Fund prior to taking it on and failed fully to rectify this failure when it became aware that its processes had been inadequate. It also failed to adequately monitor the Fund throughout most of its tenure as Operator.

There were serious issues which arose during CFM’s tenure as Operator. CFM failed to address all of these issues and failed to ensure the Replacement Operator was fully informed about the issues which had arisen. 

The FCA also found that CFM breached Principle 7 of the Principles because it failed to communicate with the Fund’s investors in a way that was clear, fair and not mis-leading.

These failings would ordinarily have resulted in the imposition of a penalty.  However, the FCA has taken account of the fact that CFM itself would not have been able to make a payment of up to £66 million for the benefit of the Fund’s investors if a financial penalty were also imposed. For this reason, the FCA does not consider that it would be appropriate to require CFM to pay a financial penalty, and has instead issued a public censure in relation to CFM.

The FCA also takes into account that Capita plc is supporting the obligation of CFM to make the payment of up to £66 million to the FCA.

The FCA is appointing Duff & Phelps as agents for the FCA to carry out the calculation and distribution of monies to investors. Geoff Bouchier, of Duff and Phelps is one of the joint liquidators of the Fund. It is not necessary for investors to take any further action at this time. Duff & Phelps will contact each investor with an outstanding claim against the Fund with more details shortly.

This brings to an end the FCA’s investigation in relation to CFM.  Other aspects of the FCA’s investigation into the operation of the Fund are continuing.

Notes to editors

1. The final notice for CFM[1] (PDF)
2. CFM means the entity known throughout the period of the operation of the Fund as Capita Financial Managers Limited and which is now known as Link Fund Solutions.
3. Capita plc means the entity which throughout the Relevant Period was CFM’s ultimate parent company.
4. On 1 June 2015, the FCA opened an investigation into the activities of CFM in relation to the Fund.
5. The payment to investors who invested via platforms and EUTs will be paid subject to any contractual fees and charges that investors may have agreed separately with intermediaries when investing in the Fund.
6. The payment also provides for an interest rate of 0.52% to be applied over the period from each Fund Investor’s capital investment and until the date on which those monies were returned to each investor.
7. To date the Joint liquidators of the Fund have distributed £22 million to investors by way of a series of dividend payments.
8. On 26 May 2011, the FSA warned investors about the marketing of the Connaught Income Funds[2].
9. On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
10. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
11. Find out more information about the FCA.